During the liberalism of the 1890's, Congress had passed the Erdman Act (1898), which attempted to prevent disruptions to interstate commerce by labor strife, a problem growing from the emerging union movement in America. The Act prohibited "yellow dog" contracts -- pre-employment agreements that a worker would not join a union on pain of dismissal -- and the discharge or blacklisting of workers for union activities.

The constitutionality of the Erdman Act was ultimately challenged by an employer who had discharged an employee for union activity, holding that it was an unlawful invasion of property rights protected by the Fifth Amendment and the guarantees of due process.

In writing for the Court, Justice John Marshall Harlan suggested the equality of management and labor in the bargaining arrangement, and held the law to be an undue encroachment on personal liberty and private property rights, in violation of the Fifth Amendment. In addition, reaching back into early arguments over substantive due process and the free labor ideology, Justice Harlan associated the right of freedom of contract with the Fifth Amendment.

In conclusion he found that attempts to regulate union activity on either side of the bargaining table were outside of Congress' constitutional power under the Commerce Clause, and that there was "no legal or logical connection" between interstate commerce and union membership.

Dissenting opinions came from Justice Joseph McKenna, who felt the decision lacked realism, and Justice Oliver Wendell Holmes, who posited that the legislature was, in fact, the right place to initiate limits on the freedom of contract.

The precedents set by this decision in labor-management relations remained in place until the socialist groundswell of the New Deal era twenty five years later.